Fiscal Decentralization, Institutional Quality, andGovernment Size: An Asymmetry Analysis for AsianEconomiesSidra Sohail 

Pakistan Institute of Development EconomicsSana Ullah  ( Sana_ullah133@yahoo.com )

Quaid-i-Azam University https://orcid.org/0000-0003-3431-9776Ilhan Ozturk 

Cag UniversitesiAttiya Yasmin Javid 

Pakistan Institute of Development Economics

Research

Keywords: Fiscal decentralization, Institutional quality, Government size. NARDL, Asain economies

Posted Date: December 1st, 2020

DOI: https://doi.org/10.21203/rs.3.rs-114619/v1

License: This work is licensed under a Creative Commons Attribution 4.0 International License.  Read Full License

1

Fiscal Decentralization, Institutional Quality, and Government Size: An Asymmetry Analysis for Asian

Economies

Sidra Sohail

Pakistan Institute of Development Economics (PIDE) Islamabad, Pakistan.

Email: sidrasohail_14@pide.edu.pk

Sana Ullah

Quaid-i-Azam University, Islamabad, Pakistan.

Email: sana_ullah133@yahoo.com

Ilhan Ozturk

Cag University, 33800 Mersin, Turkey.

Email: ilhanozturk@cag.edu.tr

Attiya Yasmin Javid

Pakistan Institute of Development Economics (PIDE) Islamabad, Pakistan.

Email: attiyajavid@pide.org.pk

2

Abstract

The aim of this study is to examine the asymmetric effects of fiscal decentralization and institutional quality on

government size by employing asymmetric autoregressive-distributed lag (ARDL) methodology by using the

time series data of Asain economies from 1984 to 2017. The results show that positive shocks in expenditures

decentralization (ED) enhance government size in Japan, Kazakhstan, Thailand, Turkey, and reduces it in Korea,

Rep. in long run. While negative shock in ED reduces government size in Pakistan, Thailand, Turkey and

increases it in Kazakhstan and Mongolia in long run. Whereas asymmetric results in the long show that a

positive shock in revenue decentralization (RD) increase government size in Pakistan, Japan, Kazakhstan,

Thailand, and Turkey, and a negative shock in RD is also decreased government size in Pakistan, Mongolia,

Thailand, and Turkey. The results also disclosed that positive shock in institutional quality (IQ) increases

government size in Azerbaijan, Japan, Thailand and negative shock in IQ also increases government size in

Pakistan, Azerbaijan, Japan, Kazakhstan, Thailand, in the long run. While short-run asymmetric results of fiscal

decentralization and institutional quality on government size have robust in the public sector. Based on the

empirical outcomes, some economic policy implications are proposed for the provincial and federal governments

of Asain economies.

Keywords: Fiscal decentralization. Institutional quality. Government size. NARDL. Asain economies.

Introduction

Due to a disastrous event throughout the world in the first half of the 20th century, the need for fiscal

decentralization and strong national governments increased. Two world wars and a great depression are major

factors that lead to countries’ increased dependence on central governments. The peak of decentralization came

in the 1950s and then began to decline. Again a heavy trend towards decentralization began in the early 1970s

which became commonly referenced as a “prescription for growth” for developing economies. After the failure

of the Soviet Union, decentralization’s momentum accelerated across the globe, especially in China and Latin

American nations. By the 1990s countries began to converge to mid-levels of decentralization (Thiessen 2003).

Both developed and developing countries have been improving their public sector performance while turning

towards the devolution of their responsibilities towards local governments (Oates 1999).

Decentralization of powers most commonly refers to fiscal decentralization that is the transmission of

powers from central to sub-national governments. In other words, it is the transmission of policymaking

3

concerns from the federal authority to local authorities regarding expenditure and revenue collection. It is

believed that fiscal decentralization is an important instrument for policymakers to gain financial efficiency and

ensure good governance as the local governments are given financial independence. Furthermore, fiscal

devolution is the easiest dimension to quantify and compare. The most common measures of fiscal

decentralization are sub-national shares of authority revenue and expenditures. Therefore, decentralization is a

route through which the responsibilities and resources are transferred to subnational governments in such a way

that resources can be used in a better way, public living standards can be improved and workload can be shared

among all levels of governments. In low-income countries, decentralization has been opted to eradicate poor

governance and macroeconomic instability, however, in western countries it is opted to offer public goods in a

more cost-effective manner. Decentralization originated in Latin American countries due to the political pressure

of their citizens for pursuing democratization. In short, decentralization is thought to carry political authorities

closer to the general public and bring out equality in the establishment of public goods to various localities of the

same country.

Fiscal decentralization theories can be expressed in two groups of development; first-generation theory

of fiscal decentralization and second-generation theory of fiscal decentralization. The basic idea of fiscal

decentralization is given by Hayek (1945), who noted that fiscal decentralization improves economic efficiency

in the provisions of the public sector and local authorities provide the goods and services that better reflect the

preferences of the peoples. The first-generation theory of fiscal decentralization is developed by Hayek (1945),

Tiebout (1956), Musgrave (1959), Oates (1972), and Brennan and Buchannan (1980). In modern times, a new

theory linked to fiscal decentralization has been developed is called the second generation theory (Oates 2005),

who noted that political institutions improve the economic efficiency with fiscal institutions. The second-

generation theory draws on insights from various economic theories like the theory of principal-agent, theory of

contract, theory of firms, theory of asymmetric information (Oates 2005).

However, one of the benefits of decentralization is that local governments are supposed to have a

greater knowledge of public choices than that of the central government and it is noticed when local

governments are involved in decision making it results in enhancing the overall efficiency of the government.

Furthermore, tax collection increases in the decentralized setup of governments because local governments have

direct access to the local community. It is expected that due to decentralization the relative size of government

gets affected. The debate on this issue starts from the “Leviathan hypothesis” formulated by Hayek (1945),

Musgrave (1959), and Brennan and Buchanan (1980) which states that “government intrusion into the economy

4

will be smaller when the public sector is decentralized”. Many researchers investigated this Leviathan

Hypothesis empirically mostly for samples of Latin American countries and OECD economies. The existing

studies on fiscal decentralization effect on government size have two main strands: the first one indicates a

negative link of fiscal decentralization on size of government (Marlow 1988; Ehdaie 1994; Rodden 2003;

Cassette and Patty 2010; and Golem and Perovick 2014; Carniti et al. 2019); while the second strands establish a

positive link between fiscal decentralization and size of government (Nelson 1986; Grossman 1989; Wu and Lin

2012, Canavire-Bacarreza et al. 2020). However, the present study is important to improve the existing literature

of economics by giving the asymmetric results of fiscal decentralization and institutional quality on government

size in the context of Asain economies because past studies have also found positive and negative results on this

nexus.

The link between institutions and government size is also one of the most interesting research areas

which need to be explored adequately. As the government plays the role of an endogenous element in the

economic and political system so the government is responsible for the implementation of economic policy.

However, the behavior of the government is directly and indirectly determined by the numerous institutional

limitations that include the political system (Snowdon and Vane 2005). Furthermore, the political system is tense

with certain conflicts of interests like exploitation of political power and misuse of public funds, conflict over the

allocation of redistributive transfers; and clash over the distribution of resources among themselves. Political

bodies play a significant role in the resolution of these kinds of conflicts of interest. The literature revealed that

the stability of the good quality of political institutions affects the relative size of government (Arora & Chong

2018). However, economists also argue that government institutions show a key function in formating

government size and efficiency in the world. Placek et al. (2020) familiarized the key determinants of local

government efficiency in analysis namely fiscal centralization, information asymmetry, competition among

municipalities, bureaucratic behavior, intergovernmental grants and transfers, fiscal illusion, municipality size,

and institutional environment. Khan and Hanif (2020) found that institutional quality in determining the

relationship between output growth and government size in Pakistan.

Many studies have tried to validate the symmetric impacts of fiscal decentralization and institutional

quality on the size of government by using annual data from different countries. For instance; Stein (1999) for

Latin America, Chong and Gradstein (2007) for developing and developed economies, Prohl and Schneider

(2009) for 29 economies, Makreshanska et al. (2016) for Europe, and Thanh and Canh (2019) for Vietnam.

These studies report mixed findings, some studies report significant impacts of fiscal decentralization on the size

5

of government while some studies report insignificant impacts of fiscal decentralization on the size of

government. None of the above-mentioned studies related to the globe have considered the asymmetric impacts

of fiscal decentralization and institutional quality on the government size. We fill this gap by employing shin et

al’s. (2014) asymmetric ARDL methodology that examines the asymmetric effects of institutional quality and

fiscal decentralization on the government size in Asain economies.

In general perception, fiscal decentralization along with good quality institutions enhances the size of

sub-national governments while lessening the overall size of the public sector. Thus, there is essential to examine

the direction of impact between fiscal decentralization, institutional quality, and government size with an exact

focus on the query whether decentralization of fiscal resources leads to a decrease or an upsurge in the

magnitude of the public sector. A common proposition behind previous empirical literature is that the impacts of

fiscal decentralization and institutional quality on government size are symmetric, meaning that centralization

improves the government size, decentralization must worsen it. In the asymmetric analysis, a positive shock to

the institutional quality mean that an increase in institutional quality (rich quality of institutions) and a negative

shock to the institutional quality means that a decrease in institutional quality (poor quality of institutions).

While positive shock in institutional quality enhances the government size and negative shock in institutional

quality must worsen it. How useable is this proposition? Could the impacts of decentralization and institutional

quality on government size be asymmetric? Therefore, the aim of this paper is to test this hypothesis by using the

annual time series data of ten Asain economies. The ten Asain economies are selected on the based availability

of the dataset. From the previous literature issues, understanding the asymmetric/nonlinear association between

fiscal decentralization, institutional quality and government size in Asia at the country level is of great

significance for academia and policy-makers. Based on the literature of earlier studies relating to fiscal

decentralization, institutional quality, and government size, this study is the pioneer of its kind in this area.

The main contribution of this empirical study is to explore broadly the decentralization debate and

experience in the case of Asain economies. In this way, the study makes an effort to gauge the impacts of

expenditure and revenue decentralization on government size in Asain economies. The study also incorporates

the quality of institutions in assessing the function of fiscal decentralization in determining the size of the

government. One of the significances of the present study is that it is a fresh attempt to empirically analyze the

asymmetric link between government size, institutional quality, and fiscal decentralization in Asain economies.

This study is very important in policymaking in Asian economies as well as in other nations.

6

The rest of the paper is structured as follows: Section 2 deals with the literature review and section 3

describes the details of the model, data description, and variables. While section 4 describes a detailed discussion

of results; and section 5 gives the conclusion with some policy recommendations.

Literature review

Decentralization is a controversial topic whose merits have been debated by economists and

policymakers for decades. The efficient provision of public goods is the predominant argument in favor of

decentralization. This section delivers literature relating to fiscal decentralization, institutional quality, and

government size. Brennen and Buchanan (1980) are the pioneers in originating the Leviathan hypothesis and

noted that “total government intrusion into the economy should be smaller, ceteris paribus, the greater the extent

to which taxes and expenditures are decentralized”. Their study assumes the inseparability of revenue and

expenditure decentralization. Furthermore, the study depicts that the government plays the role of a gigantic

monster, which tries to achieve maximum revenues through money creation, increase in taxation, and debt. This

kind of role of government leads to expanding the government size. Under this strategy, the centralized

government tries to disguise and promote its selfish interests. Another issue is that the government does not have

any access to regulate on taxpayers. Brennan and Buchanan (1980) suggest two methods to control this

Leviathan. One way is the provision of a balanced budget and inadequacy of government tax and other fiscal

instruments through constitutional constraints and another way is the decentralization of government’s power

through expenditure and revenue decentralization. Jia et al. (2020) show that fiscal decentralization reform is

simultaneously improving the tax autonomy of the economy. Song et al. (2018) results indicate that fiscal

decentralization can stimulate total green factor productivity in China. Canavire-Bacarreza et al. (2020) find that

a subnational expenditure decentralization has stimulated GDP per capita growth by 0.82% and revenue

decentralization has stimulated GDP per capita growth by 0.57%. The results also show that expenditure

decentralization is comparatively more effective on GDP per capita growth than revenue decentralization. While

Carniti et al. (2019) identify the bell-shaped in nexus of expenditure decentralization and growth in European

economies.

In the earlier study, Oates (1985) investigates the link between fiscal decentralization and size of

government for a sample of 43 developing and developed countries and 48 states of the United States. Tax

receipts are used to measure relative government size. The study finds no significant relationship in both

samples. Similarly, Nelson (1986) also reports nonexistence of the Leviathan hypothesis for the US. It is argued

7

that instead of using tax receipts to measure government size, most of the studies are using the portion of

government expenditures in the economy as a proxy to measure government size. It can be justified as an

expenditure-based measure of government size that provides complete resource absorption of government as

compared to revenue receipts. In a study for US, Marlow (1988) uses the ratio of total government expenditure

to the gross national product as a proxy for measuring government size. The study measures decentralization as a

sub-national expenditure as a portion of total government expenditures. The paper also reports a negative

significant link between fiscal decentralization and government size. Grossman (1989) investigates the Leviathan

hypothesis for the US by incorporating the role of grants. Government size is regressed on expenditure

decentralization and vertical imbalance. The study reports a positive relationship between fiscal decentralization

and government size. The study suggests that grants play a positive role in the expansion of the public sector.

Ehdaie (1994) investigates the Leviathan hypothesis on two samples. Sample one includes 26 countries in 1977

and sample two consists of 30 countries in 1987. The study reports a negative influence of fiscal decentralization

on the relative size of government. Tanzi and Schuknecht (1997) argue in their study that probable social gains

could be availed with smaller government size whose expenditure ranges between 30 to 40 percent of GDP.

Shadbegian (1999) also tries to examine the influence of fiscal decentralization on the relative size of

government for the US. Direct general expenditures relative to gross state products are employed to measure

government size. Results specify a positive association between government size and decentralization along with

the negative effect of collusion on fiscal discipline. On the other hand, Stein (1999) makes an effort to explore

the Leviathan hypothesis for 19 Latin American and Caribbean countries and OECD countries. The study

highlights that the allocation function of government is mostly related to decentralization. Along with

expenditure decentralization, the study also uses fiscal imbalance and some institutional variables in the

empirical analysis. Government size is measured as the size of the public sector as a share of GDP. The study

concludes that decentralization tends to enlarge government size.

To inspect the influence of fiscal decentralization on the sub-national, national, and aggregate

governments sizes, Jin and Zou (2002) conducted a panel analysis of thirty-two industrial and developing

economies. The results conclude that expenditure decentralization decreases the size of national governments

and revenue decentralization increases the size of subnational governments but the increase is less than the

reduction in the size of the national government, which leads towards the smaller total government. In count, the

vertical imbalance leads to enhanced subnational governments sizes, national governments, and the total number

of overall governments. On the other hand, Rodden (2003) investigates the association between government size,

8

quality of institutions, and fiscal decentralization for 29 OECD countries. The study concludes that fiscal

decentralization limits the development of government size in decentralized economies. Fiva's (2006) study also

incorporates the role of institutions in investigating the Leviathan hypothesis for 18 OECD countries and

revealed that revenue decentralization reduces the size of government, however, expenditure decentralization

enlarger the size of government.

Chong and Gradstein (2007) propose that neither the government size nor the tax burden deteriorates

economic performance. To test this hypothesis the study comes up with a theoretical model in which the growth

effect of taxes is mediated through the law enforcing the ability of the state. The study reports a positive

significant link between government size and institutional quality as the relative size of the public sector expands

with the enforcement ability of institutions. The findings of the study also concluded that the quality of all

facilities delivered by the government as well as its efficiency tends to increase significantly as the quality of

institutions improves. Carmignani's (2009) study is based on three presumptions regarding the relationship

between government instability, institution quality, and income redistribution. Firstly, it proposes that poor

quality institutions lead to income inequality, however, redistribution declines income inequality. Secondly, a

positive trend in income inequality enhances the chances of government termination and lastly, higher chances

of government termination lead to enhance income distribution. The results of the study strongly support these

three proposed conjectures. The study suggests that poor quality of institutions increasing income inequality, but

this effect can be vanished out if the authority has the choice to embrace redistributive policies. While taking into

account the role of institutions, Prohl and Schneider (2009) study reports a strong negative link between

decentralization and government size.

Cassette and Paty (2010) also incorporate the role of institutions in investigating the Leviathan

hypothesis for 15 European Union economies. The findings show that decentralization also reduces the central

government size while enhances the sub-national government's size. Moreover, vertical imbalances have also

improved the sizes of subnational and national governments sizes. However, Wu and Lin (2012) found a

statistically insignificant association between fiscal decentralization and the size of government in China. While

taking into account the role of institutional quality, Ashworth et al. (2013) stated that expenditure

decentralization improves the size of government, while revenues decentralization is raised by sub-national

governments' size of the economy. Liberati and Sacchi (2013) conclude that property tax is negatively and

significantly affecting local government size while grants lead to the expansion of government size. Golem and

Perovick (2014) examine the Leviathan hypothesis for a sample of 23 OECD countries. The results show a

9

negative association between government size and revenue decentralization. Afonso and Jalles (2016) advocate

that large government size has a negative effect on the level of real GDP; however, institutions have a positive

influence on the real GDP per capita as well as government size. Furthermore, the results show that weak

institutions have a negative influence on government size, while strong institutions have a positive effect on

government size in the economy. Most recently, Qiao et al. (2019) investigate this relationship in 76 developing

and developed economies for the period of 1972-2013. The study finds a strong negative link between fiscal

decentralization and government size.

While previous studies have assumed that institutional quality and fiscal decentralization and

institutional have a symmetric influence on government size. The main drawback of the above studies and

findings is that they assumed institutional quality and fiscal decentralization to have symmetric effects on the

government size. We are unable to find a single study having a focus on examining the asymmetric impacts of

fiscal decentralization and institutional quality on government size in the case of Asain economies as well the

globe. The present study is a move in this direction to fill the gap in the stock of literature affecting fiscal

decentralization, institutional quality, and government size debate.

Model, Methodology, and Data

Materials & Methods

To test the hypothesis that fiscal decentralization and institutional quality have asymmetric effects on

government size at Asain economies, we hold the model specification of Cassette and Paty (2010), therefore the

econometric specification is given as: GSt = δ0 + δ1FDt + δ2IQt + δ3GDPt + εt (1)

Where time-series data ranges from 1 to t, GS is government size, FD is fiscal decentralization includes i.e.,

expenditure decentralization and revenue decentralization, IQ is the institutional quality index, and GDP is a

control variable. The model is measured from the government size of Asain economies, therefore, we suppose

the coefficient of δ1 to be negative and δ2 to be positive based on empirical literature. Equation (1) gives us

long-run coefficients estimates of OLS or any other method, while the error-correction approach also provides

short-term effects. However, a methodology that gives the results of long and short-run effects is called the

Pesaran et al.’s (2001) linear ARDL which we propose equation (1) in an error-correction model (ECM) as

follows:

10

ΔGSt = α0 + ∑ ϕiΔGSt−ini=1 + ∑ λin

i=0 ΔFDt−i + ∑ σini=0 ΔIQt−i + ∑ ηin

i=0 ΔGDPt−i + δ1GS t−1 + δ2FDt−1+ δ3IQt−1 + δ4GDPt−1 + εt (2)

Pesaran et al. (2001) endorse the typical F statistics to test the null hypothesis H0: δ1= δ2= δ3= δ4 = 0 against

the alternative of H1: δ1≠0, δ2≠0, δ3≠0, and δ4≠0, If the F statistic is significant in the model, this means that

cointegration also exists, for which they tabulate new small sample's critical values in this process. In equation

(2), the estimates of the coefficients devoted to the “delta" indicators reproduce short-run coefficients impacts

and estimates of δ2-δ4 normalized on δ1 reflect long-run impacts. Indeed, under the ARDL method, all variables

of the model could be a mixture of both, but not I(2). A major assumption behind equation (2) is that a shock in

the fiscal decentralization and institutional quality variable has linear behavior and effects on the government

size in Asain economies separately. While we deviate from the conventional assumption, therefore fiscal

centralization improves government size, the fiscal decentralization must worsen it. Therefore, partial sum

processes of negative and positive changes in the IQ variables are also added in the empirical analysis. More

precisely:

FD+t = ∑ ΔFD+ttn=1 = ∑ max (ΔFD+tt

n=1 , 0) (3)

FD−t = ∑ ΔFD−ttn=1 = ∑ min (ΔFD −tt

n=1 , 0) (4)

IQ+t = ∑ ΔIQ+ttn=1 = ∑ max (ΔIQ+tt

n=1 , 0) (5)

IQ−t = ∑ ΔIQ−ttn=1 = ∑ min (ΔIQ −tt

n=1 , 0) (6)

Shin et al’s. (2014) offered to replace the positive shocks (FD+t and IQ+t) and negative shocks

(FD−t and IQ−t) variables in the error-correction model of equation (2). Negative and positive shocks have the

same means as negative and positive changes in variables. Therefore, both terms (negative & positive changes

and negative & positive shocks) have been similarly used in prior literature. The result is the

asymmetric/nonlinear ARDL model given by equation (7):

11

ΔGSt = α0 + ∑ θiΔGSt−ini=1 + ∑ ϕin

i=0 ΔFD+t−i + ∑ ψini=0 ΔFD−t−i + ∑ φin

i=0 ΔIQ+t−i + ∑ σini=0 ΔIQ−t−i

+ ∑ ηini=0 ΔGDPt−i + δ1GS t−1 + δ2FD+t−1 + δ3FD−t−1 + δ4IQ+t−1 + δ5IQ−t−1

+ δ6GDPt−1 + εt (7)

Although equation (7) seems symmetric/linear, they are usually denoted to as asymmetric/nonlinear ARDL

models due to the two-time series variables. Shin et al’s. (2014) establish a latest econometric approach is called

nonlinear model (eq 7) by using OLS, while diagnostic tests will remain the same. Once the asymmetric ARDL

is estimated, a few additional suppositions can be tested. First, if ΔFD+t−i (ΔIQ+t−i) and ΔFD−t−i(ΔFD−t−i) accept dissimilar lag orders in either model, it will show the short-run asymmetries. Second, if the coefficient

estimate of ΔFD+t−i (ΔIQ+t−i) and ΔFD−t−i(ΔFD−t−i) is different at the same lag (i), it will show the short-run

asymmetric impacts. Finally, we will apply the Wald test for the short and long-run dynamic asymmetries of FD

and IQ on government size. However, both the symmetric equation (2) and asymmetric model equation (7) are

measured in the next section.

Data description and variables

The empirical study covers the period from 1984 to 2017 for selected ten Asain economies, namely, Pakistan,

Armenia, Azerbaijan, Iran, Japan, Kazakhstan, Korea, Rep., Mongolia, Thailand, and Turkey. These economies

are selected in Asia on the availability of the dataset. All the required data is retrieved from the World

Development Indicators of World Bank and Government Financial Statistics of International Monetary Fund

(IMF), and the International Country Risk Guide (ICRG). While Pakistan's dataset of expenditure

decentralization and revenue decentralization is taken from the State Bank of Pakistan. This study is used the

overall public sector. While separately analysis of various government levels is not econometrically possible due

to small data observation when we break the dataset. The detailed variables description is also described in Table

1. Government size is calculated as total government expenditures as a (% of GDP) in the economy. The study

has used two measures of fiscal decentralization (FD); for instance, expenditure decentralization and revenue

decentralization. Expenditure decentralization is calculated as the ratio of own spending to general government

spending and revenue decentralization is measured as the ratio of own revenues to general government revenues.

The degree of expenditure and revenue decentralization with government size is reported in Table 2 for ten

selected Asain economies. While the institutional quality index is used the six indicators, for instance,

12

government stability, law and order, control over corruption, democratic accountability, military in politics, and

bureaucracy quality. These variables dataset is taken from ICRG. While GDP per capita is our control variable in

this analysis and taken by WDI.

Table 1: Descriptive statistics of data

Variables Symbol Definition

Data

source

Government Size GS Total government expenditures as a percentage of GDP

WDI

Expenditure Decentralization

ED Expenditure decentralization (ratio of own spending to general government spending)

IMF

Revenue Decentralization RD Revenue decentralization (ratio of own revenues to general government revenues)

IMF

Institutional quality IQ Institutional quality is the index of six indicators, include government stability, control over corruption, military in politics, law and order, democratic accountability and bureaucracy quality

ICRG

GDP per capita GDP GDP per capita (constant 2010 US$) WDI

Table 2: Expenditure and revenue decentralization in Asian economies

Pakistan Armenia Azerbaijan Iran Japan Kazakhstan

Korea,

Rep Mongolia Thailand Turkey

GS 16.07 12.53 14.73 12.19 16.90 12.28 12.22 16.69 13.29 12.13

ED 0.45 0.05 0.03 0.06 0.42 0.47 0.56 0.29 0.12 0.10

RD 0.25 0.06 0.003 0.56 0.27 0.32 0.23 0.18 0.07 0.04

Empirical results and discussion

The goal of the paper is to explore the asymmetric impacts of fiscal decentralization and institutional

quality on government size in ten selected Asain economies from 1984 to 2017. Therefore, as a first step to

estimate the model, stationarity properties of data are analyzed by using the Phillips-Perron (PP) and Augmented

Dickey-Fuller (ADF) unit root statistics. The ADF statistics indicate that GS, ED, RD, and GDP are non-

stationary at the level or I(0) and become stationary at the first difference I(1) in Pakistan in Table 3. While IQ is

stationary at a level in Pakistan which implies that the variables of the models fulfill all the conditions of the

ARDL approach. However, PP statistics revealed that all indicators are non-stationary at the I(0) and become

stationary at I(1) in Pakistan. The results are also recapped that Armenia, Azerbaijan, Iran, Japan, Kazakhstan,

Korea, Rep., Mongolia, Thailand, and Turkey variables are a mixture of I(0) and I (1), and none of the indicators

are integrated I (2) in Table 3.

Table 3: Unit root tests

GS ED RD IQ GDP

ADF PP ADF PP ADF PP ADF PP ADF PP

Pakistan

I(0) -1.497 -1.46 -1.423 -1.423 0.197 0.222 -2.787* -1.752 -1.007 -0.997

I(1) -5.953*** -5.963*** -7.442*** -11.97*** -5.211*** -5.205*** -4.219*** -4.528*** -4.462***

Armenia

I(0) -1.663 -1.746 -1.053 -1.016 -2.633* -2.379 -1.614 -1.630 -0.137 -0.373

13

I(1) -5.118*** -5.098 -6.165*** -6.219*** -4.784*** -4.549*** -4.453*** -3.710*** -3.635***

Azerbaijan

I(0) -1.874 -1.729 -1.752 -1.126 -1.056 -0.802 -1.097 -1.151 -1.712 -0.726

I(1) -5.631*** -5.811*** -6.756*** -9.676*** -6.898*** -6.913*** -7.727*** -7.749*** -2.658* -2.916*

Iran

I(0) -2.548 -2.548 -3.056*** -3.076* -1.161 -1.161 -1.714 -1.714 -0.043 -0.329

I(1) -5.576*** -5.576*** -2.906* -4.186*** -4.121***

Japan

I(0) -0.220 -0.447 -1.158 -1.154 -0.855 -1.484 -1.180 -1.443 -3.892*** -3.909***

I(1) -3.701*** -3.733*** -10.26*** -10.54*** -3.146*** -3.091*** -3.536*** -3.511***

Kazakhstan

I(0) -2.769* -2.648* -0.683 -0.917 -1.335 -1.388 -2.178 -2.207 -0.275 -0.598

I(1) -4.397*** -4.375 -4.851*** -4.843*** -4.876*** -4.821*** -3.224*** -3.303**

Korea, Rep

I(0) 0.030 0.188 -1.539 -1.273 -3.160* -2.989** -1.996 -2.074 -4.662*** -7.533***

I(1) -6.177*** -6.201*** -7.299*** -8.313*** -4.028*** -3.873***

Mongolia

I(0) -2.140 -1.869 -1.834 -1.688 -2.262 -2.028 -1.714 -1.945 -1.548 0.710

I(1) -7.309*** -8.319*** -7.183*** -7.426*** -9.713*** -11.34*** -2.991** -2.973** -2.614* -2.761*

Thailand

I(0) -0.308 -0.816 -1.212 -1.261 -3.363** -3.301** -0.665 -0.894 -2.660* -2.668*

I(1) -2.900** -3.017** -4.230*** -4.299*** -4.884*** -4.880***

Turkey

I(0) -1.611 -1.609 -1.339 -0.502 -3.470*** -3.412*** -1.918 -2.214 0.289 0.461

I(1) -5.813*** -5.807*** -7.132*** -8.867*** -3.975*** -3.834*** -5.995*** -6.020***

Table 4 describes the long-and short-run outcomes of linear ARDL. In panel A, the short-run

coefficients of ED transmit a negative impact on government size in Pakistan, Armenia, and Iran. However, the

short-run coefficient of ED has a positive significant impact on government size in Japan and Kazakhstan.

Coefficients of the short run for the Pakistan, Armenia, and Azerbaijan show that RD has a significant and

positive impact on government size. Contrary results have been revealed in Iran and Turkey, in which, ED has a

negative significant impact on government size. Also, short-run outcomes indicate that IQ has a negative impact

on government size in Pakistan and Mongolia, while IQ has a positive impact on government size in Azerbaijan,

Japan, Thailand. Furthermore, in the short-run, only GDP has a positive impact on government size in Pakistan

while, GDP has found negative coefficients in Armenia, Japan, Korea, Rep., Mongolia, and Thailand.

In panel B, ED and RD have a significant and positive impact on government size in Pakistan and

Kazakhstan in the long run. Similarly, the results also show that RD has a significant positive impact on

government size in Armenia and Mongolia. This implies that higher expenditure and revenue decentralization

expand the government size and also these findings contradict the Leviathan Hypothesis in Pakistan. This

finding is consistent with the evidence documented by Stein (1999) for Latin America, Jin and Zou (2002) for 32

developing and industrial countries, Wu and Lin (2010) for China, Baskaran (2011) for 18 OECD countries, and

Ashworth et al. (2013) for 28 countries. However, the coefficient of institutional quality is significant and

positive effects in Pakitan and Azerbaijan it shows the valuable quality of institutions is rising the government

14

size in the long term. The coefficient on GDP is significant and negative in Pakistan and Mongolia which

indicates that an upsurge in GDP tends to decline the government size. This result also conflicts with Wagner’s

law who noted that income level increases the government size. While Wagner's law predicts in Armenia,

Azerbaijan, Kazakhstan, and Thailand.

Panel C reports the diagnostic statistics of the ARDL model. The result displays that F-test statistics are

significant in 6 out of 10 economies, which implies that the long-run relationship also exists in the model. The

ECM test is another test for cointegration that is significant in 7 economies, which implies that cointegration is

supported by F-test and ECM. Moreover, the long-run estimates are reliable because of significant ECM and F-

tests in 6 and 7 cases. The diagnostic statistics reveal that models are autocorrelation and heteroscedasticity

problems free. While RESET test statistics are also insignificant, it implies that all models are correctly

specified. Additionally, CUSUM and CUSUM square tests also show stability in estimated coefficients of

ARDL models.

Table 4: Long and short-run estimates of ARDL

Pakistan Armenia Azerbaijan Iran Japan Kazakhstan Korea, Rep Mongolia Thailand Turkey

Short run estimates ΔED𝑡 -8.301** -2.056* 2.862 -

10.47**

0.246* 1.049* 0.039 0.072 -0.045 0.808

4.302 1.726 0.254 2.216 1.741 1.677 0.210 0.177 0.123 0.254 ΔED𝑡−1 6.965* 0.601 0.440

1.872 0.587 1.142 ΔED𝑡−2 9.806**

2.273 ΔRD𝑡 1.357* 5.025*** 6.572* -0.114* 0.164 0.416 -0.274 0.205 1.207 -8.988*

1.779 3.212 1.711 1.755 0.437 1.126 0.381 0.296 0.975 1.672 ΔRD𝑡−1 0.283 -0.681**

0.376 1.965 ΔRD𝑡−2 -1.088*

1.708 ΔIQ𝑡 -4.271** 0.120 0.796*** 0.043 0.016* -0.108 0.022 -0.324*** 0.041* -0.010

4.146 1.186 4.485 0.054 1.853 1.121 1.245 2.845 1.754 0.575 ΔIQ𝑡−1 -0.612 0.156** 0.135

0.496 2.545 0.533 ΔIQ𝑡−2 7.578**

4.737 ΔGDP𝑡 4.231** -0.265* -0.123 -0.038 -

0.866***

0.079 -0.931*** -2.099*** -0.654*** 0.086

2.505 1.782 0.232 0.156 8.232 0.123 5.287 3.176 3.054 0.655 ΔGDP𝑡−1 -7.603 -

0.542***

-0.959*** -0.719*** 0.389 0.787

0.412 2.684 2.232 3.421 1.625 1.333 ΔGDP𝑡−2 16.03 0.272*

1.263 1.802

Long run estimates

ED 4.863** -3.192* 2.075 -8.959 -21.19 1.648*** 0.307 -0.405* -0.188 -7.346

5.148 1.702 0.254 0.689 0.462 5.654 0.198 1.712 0.112 0.233

RD 7.171* 7.798*** 3.373* 0.099 -12.92 1.022*** -2.144 2.747*** 5.023 -6.302

1.662 4.327 1.688 0.457 0.425 10.25 0.374 4.255 0.845 0.867

15

IQ 5.335** -0.063 0.577*** -0.012 0.233 -0.059 0.368 -0.272*** -0.023 -0.078

3.116 0.413 6.565 0.184 0.354 1.121 0.914 10.32 0.847 0.454

GDP -6.785** 0.225** 0.087** -0.090 -6.047 0.181*** 0.067 -0.103* 0.439** 0.618

7.533 2.265 2.352 0.154 0.421 4.215 1.125 1.715 2.556 0.736

C 35.41*** 0.603 1.248*** 3.066 3.075** -0.073 -0.442 3.215*** 1.458*** 5.664

7.782 0.853 2.977 0.785 2.115 0.155 0.123 3.234 5.255 1.235

Diagnostic statistics ECMt−1 -0.50** -0.64*** -0.67*** -

0.42***

0.12 -0.81*** -0.12 -0.67*** -0.24*** -0.14

2.41 3.40 6.54 2.58 0.42 5.85 1.51 6.01 3.24 -1.15

F-test 4.97* 2.06 5.58** 2.27 9.63** 12.4** 0.71 8.45** 6.31** 1.44

ADJ.R2 0.97 0.97 0.88 0.92 0.89 0.84 0.89 0.89 0.96 0.87

LM 1.02 0.72 0.78 0.26 0.52 1.84 0.21 1.94 1.52 0.19

Hetero 0.54 1.30 1.49 0.54 1.05 1.42 0.89 1.27 0.68 4.24

RESET 0.18 1.07 1.71 0.79 0.47 2.44 0.57 1.63 0.07 1.59

CUSUM US S S S S S S S S S

CUSUM

square

S S S S S S S S S US

Note: ***, **, and * indicate 1%, 5%, and 10% significance level, respectively. Bounds F-tests critical values; 4.15 at 10% and 5.01 at 5% level of significance. The critical values of LM and RESET tests statistics are 2.71(3.84) at 10% (5%) significance level.

Table 5 describes the long run and short run NARDL regression results. In short-run estimates, the

positive shock of ED has a negative significant influence on government size in Armenia, Iran, and Mongolia

while the positive shock of ED exerts a positive significant impact on government size in Japan, Thailand, and

Turkey. While the negative shock of ED has a negative significant influence on government size in Pakistan,

Japan, Thailand, and Turkey while the negative shock of ED exerts a positive significant impact on government

size in Mongolia. This implies that ED has an asymmetric influence on government size in terms of magnitude

and direction. Furthermore, the negative and positive shock of ED has similar results in the long and short term.

Similarly, negative and positive shock in RD has a similar direction in magnitude in Azerbaijan,

Armenia, Korea, Rep., Iran, Kazakhstan, while the opposite direction in magnitude in Pakitan, Japan, Mongolia,

Thailand, and Turkey in negative and positive shock of RD in the short run. Empirical results of negative and

positive shocks in RD are maintained in the long run. Overall asymmetric results of fiscal decentralization are

not signifying the linear Leviathan Hypothesis in our study. The findings get support from results obtained by Jin

and Zu (2002) for the 32 industrial and developing economies, Wu and Lin (2010) for China, Baskaran (2011)

for the 18 OECD countries, Golem and Perovick (2014), and Stein and Caro (2017) for the panel of Latin

American and OECD countries.

From the long term estimates of IQ, it is evident that positive shock in IQ has significant impacts on

government size in Pakistan, Azerbaijan, Japan, and Thailand in long run, while effects are significantly different

in magnitude. This finding is consistent with Sobhee (2010), who noted that institutional quality improves the

government size in Sub-Saharan economies. This implies that institutional quality has increased the institution's

work efficiency, in results, increases the government size in Azerbaijan, Japan, Thailand. This also suggests that

16

the institution's quality also matters in regulating the government size in the economy. While positive shock in

institutional quality shrank the government size in Pakistan and Mongolia in long run. The possible reason is that

institutional reforms improve governance quality by shrinking the government size in Pakistan and Mongolia.

Interestingly, a negative shock also improves the government size in Pakistan, Azerbaijan, Japan, and Thailand

in long run. Short-run asymmetric results of IQ are maintained and similar to long-run estimates. GDP is a

positive impact on the size of government and the coefficient is statistically significant in Pakistan, Azerbaijan,

Kazakhstan, Korea, Rep, Mongolia in the long term. The results also show that the GDP has a significant effect

on government size in the long-run suggesting that the increase in GDP meaningfully contributes to determining

the size of government in Pakistan. However, the opposite result is found in Turkey, which suggests that GDP

decreases government size in the long run.

We have also described a few extra diagnostic tests of NARDL model in panel C. The ECM values in

all Asian economies are negative and significant, it infers that the rate of adjustment towards the long-run

equilibrium is about 36%, 45%, 77%, 39%, 19%, 83%, 17%, 45%, 34%, and 84% over each year for Pakistan,

Armenia, Azerbaijan, Iran, Japan, Kazakhstan, Korea, Rep., Mongolia, Thailand, and Turkey respectively.

Regarding the presence of co-integration, only in 6 economies is asymmetry cointegration supported by F test in

NARDL diagnostic estimates. The results show that LM, RESET, and heteroskedasticity test statistics values are

insignificant in our models, which implies that residuals are autocorrelation free, no problem of

heteroskedasticity, and the model is not suffering from misspecification. We have further functional the CUSUM

and CUSUM of square tests to the estimated residuals. All models show the stability which is specified with “S”

for the stable, except three models. In the Wald test, the results of asymmetries suggest that negative and positive

changes in ED and RD affect government size differently in Pakistan, Armenia, Iran, Japan, Kazakhstan, Korea,

Rep., Mongolia, Thailand, and Turkey in the short and long run in panel C.

Table 5: Long and short run estimates of NARDL

Pakistan Armenia Azerbaijan Iran Japan Kazakhstan Korea,

Rep

Mongolia Thailand Turkey

Short run estimates ΔED𝑡+ 2.020 -2.102* 4.363 -4.622*** 1.410*** 0.406 -0.019 -0.762* 1.726** 2.094**

0.928 1.732 0.312 2.632 5.865 0.321 0.210 1.682 2.521 2.392 ΔED𝑡−1+ 0.278 0.178*

1.112 1.912 ΔED𝑡− -6.561** -2.343 2.984 -2.215 -0.287* 0.811 -0.029 0.923** -1.378** -2.766***

5.194 0.392 0.265 0.356 1.672 0.871 0.282 2.112 2.073 3.883 ΔRD𝑡 + 0.063 -1.525** 3.331 -3.035*** 0.912*** 0.469 -0.321* -0.927* 1.267** 1.605*

0.106 1.972 0.309 3.902 4.502 0.319 1.674 1.827 1.912 1.664 ΔRD𝑡−1+ 0.983 0.124

1.637 0.986

17

ΔRD𝑡 − -2.100* -2.400 1.842 -3.523 -0.294* 0.807 -0.038* 0.783* -1.708** -1.986*

1.873 0.278 0.359 0.895 1.697 0.717 1.821 1.782 2.738 1.839 ΔIQ𝑡+ -7.309** 0.091 0.901*** -0.034 0.045*** -0.182 -0.062 -0.452** 0.102*** -0.015

4.541 0.462 2.178 0.394 4.752 1.052 1.225 3.475 3.224 0.276 ΔIQ𝑡−1+ -3.151* 0.452 0.192**

1.782 1.592 2.201 ΔIQ𝑡− 5.970** 0.297 0.631*** 0.012 -0.021* -0.062 0.027* -0.283*** 0.042*** -0.035

3.865 2.014 3.245 0.123 1.672 0.263 1.872 2.691 2.856 0.736 ΔIQ𝑡−1− 1.912 -0.339 0.233 0.094*** -0.312

1.523 2.121 1.902 4.563 1.302 ΔGDP𝑡 0.239 -0.261* -0.141 -0.080 -0.825*** 0.117 -0.830*** -0.335 -0.715*** -0.586***

0.032 1.674 0.365 0.233 10.09 0.894 5.653 0.492 3.684 3.293 ΔGDP𝑡−1 -6.859 -0.521*** -0.921 -0.799***

0.980 2.612 0.885 3.578 ΔGDP𝑡−2 0.272 0.123

1.523 0.145

Long run estimates ED+ 1.482 -3.296 3.165 -4.256 4.645* 1.126** -1.708** -0.728 2.681** 2.101***

0.978 0.966 0.355 0.365 1.788 2.086 1.966 1.226 2.163 3.156 ED− -9.211** -3.671 2.165 -5.635 3.005 1.821*** -0.167 0.883** -4.006*** -2.775***

4.990 0.296 0.245 0.364 1.121 5.346 0.268 2.116 2.786 3.786 RD+ 0.722** 1.678 1.598 1.321 2.508* 1.602* -1.823 1.288 2.100** 1.610*

1.967 1.602 1.303 1.243 1.877 1.787 1.236 0.698 2.105 1.701 RD− -1.988** 1.147 1.598 1.562 2.514 1.108** 1.170 -0.563* -3.615** -0.897*

2.020 1.017 0.509 1.340 1.154 2.004 0.789 1.870 2.017 1.689 IQ+ -3.716** -1.011 0.603*** 0.015 0.075*** -0.123 0.485 -0.231*** 0.275*** -0.043

4.888 2.801 2.425 0.067 6.152 1.175 0.339 6.320 2.896 0.576 IQ− 4.860** 0.524 0.423*** -0.321 0.182*** 0.175* 0.238 -0.145*** 0.112** -0.235

6.235 2.467 3.965 1.384 6.852 1.852 0.682 3.325 2.296 0.123

GDP 12.61*** 0.213 0.090* -0.204 0.733 0.256*** 0.966** 0.567* -0.266 -0.588***

3.935 1.466 1.756 0.231 1.146 3.346 2.356 1.947 1.277 4.847

C -17.5** 3.211 1.375*** 4.136 -8.343 0.172 -5.462 -0.529 3.465*** 7.258***

3.260 1.233 2.655 0.545 0.978 0.254 1.565 0.214 2.595 6.565

Diagnostic statistics ECMt−1 -0.36*** -0.45* -0.77*** -0.39*** -0.19* -0.83*** -0.17** -0.45*** -0.34*** -0.84**

7.27 1.85 6.45 2.43 1.87 7.52 2.20 4.12 4.31 2.56

F-test 7.03** 3.56 4.56* 2.12 6.44** 10.5** 4.56* 3.45 7.17** 2.56

ADJ.R2 0.98 0.95 0.94 0.92 0.92 0.94 0.92 0.92 0.95 0.92

LM 0.08 0.23 0.87 0.65 1.33 2.02 2.20 3.95** 1.47 0.46

Hetero 1.13 0.45 1.54 0.74 0.99 0.85 1.42 2.15 0.31 0.59

RESET 0.78 0.12 1.87 1.94 0.21 2.01 0.56 1.01 0.56 1.66

CUSUM S S S S S S S S S S

CUSUM

square

S S US S S S US US S S

Wald-ED-

SR

3.34* 3.37* 0.39 4.31** 3.31** 1.08 0.38 3.57* 3.58* 13.23**

Wald-ED-

LR

2.34* 0.19 2.67 1.04 2.93* 4.57* 2.35 3.36* 5.39** 1.25

Wald-RD-

SR

4.09** 2.89* 2.38 3.50* 3.39* 1.09 8.51*** 3.58** 5.51** 3.38*

Wald-RD-

LR

3.35* 2.61 1.60 2.08 3.95** 5.09** 3.455* 4.39** 5.03** 4.33**

Note: ***, **, and * indicate 1%, 5%, and 10% significance level, respectively. Bounds F-tests critical values; 4.15 at 10% and 5.01 at 5% level of significance. The critical values of LM and RESET tests statistics are 2.71(3.84) at 10% (5%) significance level.

18

Conclusion and and policy recommendations

Since the last few decades, it has been realized that decentralized governments are more accountable

and their performance is more welfare enhancing. Decentralization is a process in which the transfer of controls

from the central or federal authority to sub-national authorities. Under fiscal decentralization, central

governments perform their stabilization and redistributions functions more efficiently and allocative efficiency is

improved when subnational governments are allowed to generate their resources to collect taxes and govern their

expenditures. In this context, the issue arises on how decentralization is affecting the size of central and sub-

national governments. Therefore, this empirical investigation examines the asymmetric effects of fiscal

decentralization and institutional quality on the size of government by using the annual dataset of selected Asain

economies from 1984 to 2017.

The results show that positive shock in ED has a positive significant effect on government size in Japan,

Kazakhstan, Thailand, and Turkey, while negative shocks in ED have a negative effect on government size in the

long term in Pakistan, Thailand, and Turkey. The asymmetric long-term results reveal that negative shocks in ED

tend to increase government size in Kazakhastan and Mongolia. Similarly, the positive shock of RD has a

positive effect on government size in Pakistan, Japan, Kazakstan, Thailand, and Turkey. However, a negative

shock to RD has reduced the government size in Pakistan, Mongolia, Thailand, and Turkey while the adverse

impact is found in negative shock in Kazakhstan in the long run. The results show that short-run asymmetries

exist in FD and RD in some selected Asain economies. The Asymmetric findings show that the Leviathan

hypothesis is incorrect in the case of fiscal decentralization in Asia. The findings also show that asymmetric

effects have deviated from the systematic effects in Asain economies.

The results also disclosed that positive shock in IQ increases government size in Azerbaijan, Japan,

Thailand and negative shock in IQ also increases government size in Pakistan, Azerbaijan, Japan, Kazakhstan,

Thailand, in the long run. This implies that IQ expands the size of the government in most Asian economies. The

attained outcomes show that an asymmetric effect also exists in terms of magnitude and direction and

asymmetric effects are also deviating from the symmetric effect. In NARDL models, coefficients on the control

variables are significant and hold expected signs. While, GDP has a significant positive impact on government

size in Pakistan, Azerbaijan, Kazakhstan, Korea, Rep, Mongolia, which implies that economic size also increases

the government size in Pakistan, Azerbaijan, Kazakhstan, Korea, Rep., Mongolia. However, economic size is

contracted the government size in Turkey.

19

Based on the empirical outcomes, some economic policy implications are suggested for the provincial

and federal governments of Asain economies as well as developing economies. The policymakers may attention

to the fiscal decentralization and quality of institutions by formulating the size of the public sector. As for the

applicable research in the future, more empirical studies can be carried out by using asymmetric ARDL methods,

which would provide clues to the researchers to reach more comprehensive results concerning the fiscal

decentralization, institutional quality, and government size nexus, especially in developing economies. Indeed,

the applications of asymmetric causality could be more helpful and fruitful, this would be essential for more

targeted policy implications.

Availability of data and materials: The datasets used and/or analyzed during the current study are available

from the corresponding author on reasonable request.

Competing Interests: The authors declare that they have no conflict of interest.

Funding: Not applicable.

Authors Contributions: This idea was given by Sidra Sohail. Sidra Sohail, Sana Ullah, and Ilhan Ozturk,

analyzed the data and wrote the complete paper. While Attiya Yasmin Javid read and approved the final version.

Acknowledgements: Not applicable

References

Afonso, A., & Jalles, J. T (2016) Economic performance, government size, and institutional

quality. Empirica 43(1): 83-109

Arora, P., & Chong, A (2018) Government effectiveness in the provision of public goods: the role of

institutional quality. J. Appl. Econ 21(1): 175-196

Ashworth, J., Galli, E., & Padovano, F (2013) Decentralization as a constraint to Leviathan: a panel

cointegration analysis. Public Choice 156(3-4): 491-516

Baskaran, T (2011) Fiscal decentralization, ideology, and the size of the public sector. Eur. J. Political Econ.

27(3): 485-506

Brennan, G., & Buchanan, J. M (1980) The power to tax: Analytic foundations of a fiscal constitution.

Cambridge University Press.

Canavire-Bacarreza, G., Martinez-Vazquez, J., & Yedgenov, B (2020) Identifying and disentangling the impact

of fiscal decentralization on economic growth. World Dev. 127: 104742

20

Carmignani, F (2009) The distributive effects of institutional quality when government stability is

endogenous. Eur. J. Political Econ 25(4): 409-421

Carniti, E., Cerniglia, F., Longaretti, R., & Michelangeli, A (2019) Decentralization and economic growth in

Europe: for whom the bell tolls. Reg. Stud 53(6): 775-789

Cassette, A., & Paty, S (2010) Fiscal decentralization and the size of government: a European country empirical

analysis. Public Choice 143(1-2): 173-189

Chong, A., & Gradstein, M (2007) Institutional quality and government efficiency (No. 606). Working paper.

Ehdaie, J (1994) Fiscal decentralization and the size of the government: an extension with evidence from cross-

country data (No. 1387). World Bank.

Fiva, J. H (2006) New evidence on the effect of fiscal decentralization on the size and composition of

government spending. FinanzArchiv/Public Finance Analysis 62(2): 250-280

Golem, S., & Perovic, L (2014) An Empirical Analysis of the Relationship between Fiscal Decentralization and

the Size of Government. Finance a Uver: Czech Journal of Economics & Finance 64(1): 30-58

Grossman, P. J (1989) Fiscal decentralization and government size: An extension. Public Choice 62(1): 63-69.

Hayek, F. A (1945) The Use of Knowledge in Society, Am Econ Rev 35(4): 519-530

Jia, J., Ding, S., & Liu, Y (2020) Decentralization, incentives, and local tax enforcement. J. Urban Econ. 115:

103225

Jin, J., & Zou, H. F (2002) How does fiscal decentralization affect aggregate, national, and subnational

government size?. J. Urban Econ. 52(2): 270-293

Liberati, P., & Sacchi, A (2013) Tax decentralization and local government size. Public Choice 157(1-2): 183-

205

Makreshanska, S., & Petrevski, G (2016) Fiscal decentralization and government size across Europe. MPRA

Paper No. 82472

Marlow, M. L (1988) Fiscal decentralization and government size. Public Choice 56(3): 259-269

Musgrave, R. A (1959) The Theory of Public Finance—A Study in Public Economy, New York: McGraw Hill

Nelson, M. A (1986) An empirical analysis of state and local tax structure in the context of the Leviathan model

of government. Public Choice 49(3): 283-294

Oates, W. E (2005) Toward a Second-Generation Theory of Fiscal Federalism, J Int. Tax Public Finance 12(4):

349-373

Oates, W. E (1985) Searching for Leviathan: An empirical study. Am. Econ. Rev. 75(4): 748-757

21

Oates, W. E (1999) An essay on fiscal federalism. J. Econ. Lit. 37(3): 1120-1149

Pesaran, M. H., Shin, Y., & Smith, R. J (2001) Bounds testing approaches to the analysis of level

relationships. J. Appl. Econ. 16(3): 289-326

Plaček, M., Ochrana, F., Půček, M. J., & Nemec, J (2020) Fiscal Decentralization Reforms and Local

Government Efficiency: An Introduction. In Fiscal Decentralization Reforms (pp. 1-49). Springer,

Cham.

Prohl, S., & Schneider, F (2009) Does decentralization reduce government size? A quantitative study of the

decentralization hypothesis. Public Finance Rev. 37(6): 639-664

Qiao, M., Ding, S., & Liu, Y (2019) Fiscal decentralization and government size: The role of democracy. Eur.

J. Political Econ. 59: 316-330

Rodden, J (2003) Reviving Leviathan: fiscal federalism and the growth of government. Int. Organ. 57(4): 695-

729

Shadbegian, R. J (1999) Fiscal federalism, collusion, and government size: evidence from the states. Public

Finance Rev 27(3): 262-281

Shin, Y., Yu, B., & Greenwood-Nimmo, M (2014) Modelling asymmetric cointegration and dynamic multipliers

in a nonlinear ARDL framework. In Festschrift in honor of Peter Schmidt (pp. 281-314). Springer, New

York, NY.

Snowdon, B., & Vane, H. R (2005) Modern macroeconomics: its origins, development and current state. Edward

Elgar Publishing.

Sobhee, S. K (2010) Would Better Institutional Quality Contribute towards Reducing the Size of Government in

Sub-Saharan Africa?. Margin: J. Appl. Econ. 4(3): 265-278

Song, M., Du, J., & Tan, K. H (2018) Impact of fiscal decentralization on green total factor productivity. Int. J.

Prod. Econ. 205: 359-367

Stein, E (1999) Fiscal decentralization and government size in Latin America. J. Appl. Econ. 2(2): 357-391

Stein, E., & Caro, L (2017) Ideology and Taxation in Latin America. Journal of the Latin American and

Caribbean Economic Association 17(2): 1-27

Tanzi, V., & Schuknecht, L (1997) Reconsidering the fiscal role of government: the international

perspective. Am. Econ. Rev. 87(2): 164-168

Thanh, S. D., & Canh, N. P (2019) Local Governance: Impacts of Fiscal Decentralization on Government Size

and Spending Composition in Vietnam. Asian Economic Journal 33(4): 311-340

22

Thiessen, U (2003) Fiscal decentralisation and economic growth in high‐income OECD Countries. Fiscal

Studies 24(3): 237-274

Tiebout, C. M (1956) A Pure Theory of Local Expenditures, J Polit Econ 64(5): 416-424

Wu, A. M., & Lin, M (2012) Determinants of government size: Evidence from China. Public Choice 151(1-2):

255-270